Potential Google Partnership Boosts Qihoo’s Shares

By Ben Levisohn

Don’t look for Qihoo 360 Technology’s (QIHU) rally to end soon. On Monday, the Chinese internet company gained8.6% after Wedge Partners said that it would link up withGoogle (GOOG) soon. Today, ABR Investment Strategy seconded that notion.

Bloomberg

In a Dec. 10 note, ABR said it expected a Google and Qihoo, a search upstart competing with to hook up because “such a partnership would help QIHU quickly ramp up its search monetization, a near-term positive catalyst for QIHU shares.” Now they’ve moved up their timing for the partnership, expecting it to happen sooner, rather than later.

The implications are enormous, ABR say:

We are raising our estimates. 2013 revenue estimate moves from $487M to $516M, and our 2013 ESP estimates move from $1.13 to $1.18…We are raising our 2013 search revenue estimates from $62M to $90M, driven by earlier than expected Google partnership…We continue to believe QIHU is a trading and secular long…As such, we are raising our 12-month price target for QIHU shares from $30 to $32, which is based on 27x our 2013E PF EPS estimate of $1.18.

The deal is clearly bad news for Baidu, say Citigroup’s Muzhi Lee and Ravi Sarathy, who note that what’s good for Qihoo is bad for China’s largest internet search engine.

Witnessing Qihoo’s monetization in search and its alliance with Google Adwords, we reiterate our Sell rating of Baidu at TP of $95.1 due to its weakening fundamentals in 2013 and increasing competitive landscape in PC search in China. We recommend long-only investors to sell Baidu on the recent stock price rebound and wait at least for 2-3 quarters to see if Baidu can solidify its stronghold in PC search and offset weakness in the mobile field by leveraging its monopolistic position in search.

UPDATE: Qihoo gave back most of its gains today and closed up just 0.34%. Baidu, on the other hand, gained 3.8% to close at $104.12–well above its 50-day moving average of $99.8 and resistance near $103.

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Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.